Argentina Seen Hanging by a Thread

Money coming from the nationalization of pension funds, which Goldman Sachs estimates at ARP1bn, provides some relief to Argentina and may help it avoid a default in 2009, but concerns remain as the economy enters a technical recession. Goldman notes that although the government says revenue grew 20.5% year-on-year in December, the growth rate was actually “almost nil” after excluding the impact of inflation and nationalization of the pension funds. Morgan Stanley adds that revenue growth was still “far below the full year’s 35.8% average growth” and that “risks to the financial anchor are rising.” “With activity fading, commodity prices falling, financing needs growing and credit markets closed, concerns about the country’s ability to pay will continue,” Merrill Lynch says, noting however that it does not expect Argentina to default in 2009. It adds that the “medium-term outlook remains increasingly uncertain” as a downside bias dominates regarding activity, credit and the global economy. The shop expects negative trends such as weak commodity prices, capital flight and decreasing consumer confidence to cause growth to drop to 1.6% in 2009 from 6.3% in 2008.